A study of firm's behavior in the B2B e-business regime

Abstract

The economic essence of Internet-based B2B business has become an ever-important market concern after the dot-com mania collapsed in early 2001. Many theories have been developed to understand this new business pattern. Nevertheless, lots of puzzles remained unsolved. So far, even whether B2B e-business is a temporary phenomenon; or is it just the extension of the old VAN-EDI system is still under debate. This research tries to answer some of the most fundamental questions of why and how companies adopt e-business application by studying the e-business fast mover's behaviors in the following three domains: the initiative for firm to adopt e-business, the business model and strategy developed to leverage Internet-based network system, and the barriers to implementing e-business practice. (1) The initiative for firm to adopt B2B e-business: the improvement of economic efficiency is used to measure firm's incentive in adopting E-business. Internet-based business tends to reduce production and distribution cost; and increases market transparency. It is argued that benefits from lowered cost are offset by buyer's higher bargaining power. Nevertheless, study shows that market power is critical as advanced computation capacity improves firm's ability to detect buyer's behavior, firms with larger market power have access to better quality data and gain substantial edge over smaller competitors. (2) The business models and strategy developed by firms to leverage e-business: Strategies of existing large firms are to pay their suppliers to link to their system in order to leverage the reduced production cost. They can, however, increase revenue by improving IT-based marketing and service quality. Small firm's strategy is to link their system with large firm's interface to gain competitive advantage over rivals. Start-up's strategy has been to reinforcing network externality to gain market share as markups are thin. The new trend for start-ups will be to differentiate their functionability and create new value-added for production firms. (3) The barriers for firms to adopt e-business: In the industry level, major barriers including fragmented market structure, unstandardized product and production process. In the firm level, the major barriers including organization and culture restructuring, interoperability between ebusiness application and with legacy system, lack of qualified personnel and knowledge, and the interoperability with complementary companies.